Tuesday, September 26, 2006

Predictive Modeling

Just what does this term mean?

Simply put, predictive modeling puts truth in the phrase "the only thing new is history we haven't learned yet." It is a series of tools and techniques for a) figuring out what we don't know and b) how marketing variables impact choice.

Articles and posts often talk about it in the future sense -- will this customer churn? will that customer buy? While perfectly valid, predictive modeling is just as valid for figuring out the past and present as well. Estimating income, identifying visitors, and depicting fraud are all examples of predicting in the present tense.

In a lot of cases the result of the exercise is expressed as the likelihood that a customer will behave in a chosen manner or is somebody we've seen before or has a certain level of a desired trait. This approach has the benefit of allowing us to rank order customers or prospects as well as understand the levers that drive behavior.

How good that prediction is will be left to a future note.

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